The Boundary Of A Limited Partner’s Management Of Partnership Affairs

In the limited partnership private equity fund, limited partners are seen as typical passive investors. Limited Partners are prohibitted from participating in the partnership affairs in not only the System of Limited Partnership in the USA but also Partnership Enterprise Act of PRC. However, in the practice domestic, limited partners always have an impulse to participate in the partnership affairs. There are for reasons for the generation of the impulse. Firstly, general partners are too weak to be trusted by limited partners. In order to protect their own interest, limited partners tend to participate in the affairs; secondly, the population characteristic of limited partners affects the strategic choice of limited partners. For example, to fulfill ther duty of obligaiton of protecting the value of stated-owned assets, stated-owned investors have a strong motivation to participate in the affairs; thirdly, the agency risk between limited partners and general partners exacerbates the motivation of limited parterns to participate in the partnership affairs actively. Obviously, the positivity of limited partners conflicts with the hypothesis of “passive investors”. Therefore, as the limited partners have already exceeded the limitation and participated in the partnership affairs activly, to define the boundary for limited partners to participate in the partnership affairs is of greatest importance in the private equity fund.When it comes to define the boundry of participating in the affairs, as to legistive trend, many foreign countries such as New Zealand adopt both the “Control Rule” and the “Safe Harbor Rule” in their legislation. The scope of the “Safe Harbor” is always wider and has greater flexibility. When it comes to the theoretical research, most of the domestic scholars hold the opinion that the scope of the “Safe Harbor” in the legislation in our country is too narrow for the practice. On the premise of sticking to the “Control Rule”, the legislation shall widen the scope of the “Safe Harbor” moderately. But there are still some other scholars hold the opinion that widenning the scope will incur problems on the legislative idea and technology. They think that the Act shall remove the regulation that “limited partners shall not participate in the partnership affairs” and establish the “pierce the limited partnership veil” rule.Referring to the development of the system of limited partnerships and the regulations relevant in other countries and regions, the relevant regulations of the Partnership Enterprise Act of PRC shall be revised. Firstly, to sticik to the principle of autonomy of will and avoid the posterity of legislation, the Act shall redefine the scope of the “Safe Harbor”, and add the save clause in the Article 68, allowing partners reallocating the powers of management internally. Meanwhile, the Act may establish the principle of “Piercing the limited partnership veil” to confine limited partners participating in the management moderately.